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January

US Dollar weaker in spite of Trump’s intervention

Published: Friday 26 January 2018

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US Dollar weaker in spite of Trump’s intervention

Sterling up following Gross Domestic Product (GDP) data

Canadian Dollar hit by poor retail sales

US GDP awaited

By David Johnson

Happy Australia Day!
Happy Australia Day everyone! This marks the day in 1788 when the British ships first arrived at what is now Port Jackson, New South Wales, after an eight month journey from England and a decision to relocate from Botany Bay. And we complain about a 24 hour flight schedule! I hope your barbeques were full of prawns and your beers were icy cold.

US Dollar continues its downward slide amidst a flurry of activity
The US Dollar continued to slip away yesterday as investors appear to be striking out into other markets now that the global economy is slightly less scary. The Pound pushed up above $1.42 and the Euro made it above $1.24. We are getting mixed signals from the American authorities. The US Treasury Secretary said on Wednesday that a weak US Dollar was desirable to help US exporters, but his President contradicted that on Thursday as he basked in his own glory in Davos and said he wanted to see a stronger USD.

Meanwhile, US new home sales slumped in December. At a negative 9.3%, the figure was significantly worse than the minus 7.9% the markets had been expecting.

This afternoon brings the first estimate of US economic growth in Q4 and that is expected to have slipped a little from the Q3 high of 3.2%. Something around 2.9% annualised is the forecast and that is still healthy. I doubt it will stop the Federal Reserve in its plans to normalise interest rates through the year. Maybe three 25 basis point hikes are coming in 2018.

Peas in a Pod?
Trump’s previous comments had suggested he believed a weak USD was better and that brought criticism from other central bankers, who always complain about countries trying to weaken their currencies to seek export advantage. That is in spite of pretty much every country spending the last decade doing precisely that. So, when Mario Draghi of the European Central Bank (ECB) moans about the US having a weak Dollar bias, he should perhaps take a look at the minimal interest rates and huge Quantitative Easing (QE) budget the ECB is sporting too. Oh and Mr Draghi announced yesterday that he sees little sign that Eurozone interest rates will rise in 2018. Oddly enough, that will tend to weaken the Euro in the medium term. Pot and Kettle Mr Draghi, pot and kettle…

However, it isn’t just a USD story today…

Sterling strong against Euro and other key currencies
Sterling has made gains against the Euro and several other currencies, including the Australasian Dollars, Japanese Yen and the Canadian Dollar. This morning’s release of UK Q4 GDP data (first estimate) beat expectations of 1.4% annual growth, coming out at 1.5%, boosting the Pound further and pushing the GBP-USD exchange rate up to around 1.425 – a significant jump from the 1.415 level seen earlier this morning. Sterling also strengthened further against the Euro, up to an impressive 1.144 from 1.141. Those who have been waiting for a stronger Pound to surface have a great opportunity here.

Canadian Dollar weaker thanks to poor retail sales
The Canadian Dollar also weakened on the back of very disappointing retail sales data. 0.2% growth in November was dire in comparison to the 0.7% forecast and October’s 1.6% growth. It was largely the car sector that dragged the numbers down. We get Canadian inflation data this afternoon and that is forecast to be pretty poor. So there is scope for further weakness in the CAD later in the day.

Festive memories…
It is hard to believe it was a month ago that we were all waking up on Boxing Day and wondering if Twiglets, peanuts, cold ham and Toblerone were suitable as a breakfast, but it was. And, as well as Australia Day, 26th January also marks the day in 1965 when Hindi became the official language of India. So badhaee hindee.

Ski and Board jokes
Q) What is the difference between a ski instructor and God?
A) God doesn't think he is a ski instructor.

Q) How does a snowboarder introduce himself?
A) Sorry dude; did I hurt you?

Q) How do you know when a ski instructor walks into the room?
A) Don't worry, he'll tell you.

Q) What does a ski instructor say after the first hour?
A) “Well that’s enough about me; let’s talk about skiing.”

Q) What’s the difference between a government bond and a ski bum?
A) A government bond will eventually mature and pay you back.